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Report Criticizes Senators on Casino in Queens

Inspector General Joseph Fisch in Albany on Thursday to discuss an inquiry into problems with the bidding for a Queens casino.Credit
Nathaniel Brooks for The New York Times

State Senate leaders manipulated the choice of who would build New York City’s first casino, leaking information and showing favoritism to a troubled bidder that was donating to Democratic candidates and had ties to key political figures, the state inspector general said Thursday.

In a scathing 308-page report on the competition to install video slot machines at the Aqueduct racetrack in Queens, the inspector general described a chaotic and ultimately doomed process that was without formal rules or objective criteria, and was awash in “unrestrained political considerations,” lobbyists and targeted campaign contributions.

The report says that the bidder, a consortium called the Aqueduct Entertainment Group, marshaled funds at the behest of the state’s Democratic Senate Campaign Committee, casting “a taint on the motives behind the Senate leadership’s support of” Aqueduct Entertainment. The investigation included interviews with senators and other state officials, as well as internal e-mail among Aqueduct Entertainment members and lobbyists.

Citing possible violations of laws governing public officials by John L. Sampson, the Senate Democratic leader from Brooklyn; Malcolm A. Smith, the Senate president from Queens; and Angelo Aponte, the appointed Senate secretary, the inspector general’s office said it was referring its findings to federal and state prosecutors and the Legislative Ethics Committee.

“At each turn, our state leaders abdicated their public duty, failed to impose ethical restraints and focused on political gain at a cost of millions to New Yorkers,” Inspector General Joseph Fisch said in a statement. “Shamefully, the public’s best interest was a matter of militant indifference to them.”

The report — following a classic outline of state business distorted by lobbyists, politics and money — emerges in the final weeks of an election season in which candidates across New York State have vowed to clean up Albany.

Besides the Senate leaders, the report faults close aides to Gov. David A. Paterson for not keeping him apprised of concerns about Aqueduct Entertainment, blames the governor himself for relinquishing control of the process and criticizes the Assembly speaker, Sheldon Silver, for Sphinx-like silence despite his own knowledge of Aqueduct Entertainment’s problems.

Mr. Paterson, along with leaders of the Senate and the Assembly, selected Aqueduct Entertainment in January to operate 4,500 electronic slot machines at Aqueduct, a franchise worth tens of millions of dollars a year to the operator and an estimated $1.5 million a day in tax revenue for the state’s depleted coffers.

After complaints of favoritism surfaced, Mr. Paterson reversed the selection in March. The casino is now being built by a subsidiary of an international entertainment company, Genting New York, which won a follow-up competition. Among other pledges, Genting offered an upfront payment to the state of $380 million, which it has already paid.

Before the reversal, however, Senators Sampson, Smith and Eric Adams of Brooklyn, the chairman of the Senate racing and gaming committee, mingled with an Aqueduct Entertainment partner, Jeffrey Levine, and Aqueduct Entertainment’s lobbyists at what one participant called a “victory celebration” held at the Albany home of one of those lobbyists, Carl Andrews, a former state senator.

“This report reveals Albany at its most sordid,” said Blair Horner, legislative director of the New York Public Interest Research Group. “Every New Yorker should be outraged. We urge the district attorney and U.S. attorney to move quickly on the I.G.’s finding of possible violations of the public officers law.”

In a statement on Thursday, the governor’s communications director, Morgan Hook, said, “While we are still reviewing the I.G.’s findings, one thing is indisputable: Earlier this year, Governor Paterson refashioned the selection process for a gaming operator at Aqueduct and further convinced the legislative leaders to adhere to this new process.”

Mr. Sampson, in a statement, did not specifically address the accusations. “The inspector general’s report highlights the well-known flaws in the selection of a bidder to operate a video lottery terminal facility at Aqueduct racetrack,” he wrote. “The process lacked structure, and the rules changed repeatedly.”

Several other officials named in the report, including Mr. Smith, Mr. Adams and Mr. Aponte, did not respond to requests for comment Thursday. A spokesman for Aqueduct Entertainment declined to comment. In a statement, Mr. Silver called the report “the comprehensive, thorough investigation I asked for in February” about the selection process.

The report concludes that Aqueduct Entertainment should have been disqualified from the start because of concerns about its financial stability and legal problems of some of its members. Instead, the governor’s office and Senate leaders ignored advice from the State Budget Office and the Division of the Lottery to disregard the company’s bid.

Aqueduct Entertainment was founded by Karl O’Farrell, an Australian investor with a number of legal problems that regulators viewed as troublesome, and included Larry J. Woolf of the Navegante Group, a Las Vegas casino company; Levine Builders, a developer based in Queens; and the Rev. Floyd H. Flake, a former congressman who remains influential in Queens politics.

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The inspector general found that an assistant to Mr. Aponte, the Senate secretary, leaked a Senate memorandum detailing the six competing bids to Hank Sheinkopf, an Aqueduct Entertainment lobbyist and a longtime political consultant, in May 2009. On May 12, 2009, Mr. O’Farrell wrote an e-mail to other members of his consortium that said: “On the information leaked so far, we are looking good. Hopefully more today.”

In November, Mr. Sampson disclosed more information about the bidders and their comparative rankings to Mr. Andrews, the report said. The bids were being judged on how much money the bidders would guarantee for the state, how quickly they could open, their financial health and their ability to meet State Lottery licensing requirements.

Bidders were permitted to alter their proposals, and at one point the state even requested that they do so to guarantee more money for the public. The report did not tie either leak to a specific change in Aqueduct Entertainment’s bid, but it did say that on Sept. 23, the group modified its financial projections in such a way that it vaulted from last to first on that criterion (one bidder had dropped out).

The report also said Aqueduct Entertainment had been urged to bring aboard a particular developer, Donald Cogsville. An internal e-mail said this request was “at the insistence of a certain senator,” and one of the group’s members told the inspector general’s office that he believed the senator to be Mr. Sampson.

The report did not say why Mr. Sampson might push Mr. Cogsville’s interests, and the Senate leader told investigators that he could not recall doing so.

At a news conference on Thursday, Mr. Fisch said Mr. Sampson’s testimony lacked credibility. “I stopped counting the number of ‘I don’t recalls’ when I reached 100,” he said.

Mr. Smith, who had publicly recused himself because his mentor, Mr. Flake, was a minor partner in Aqueduct Entertainment, demanded briefings from Senate staff on the bidding and advocated on behalf of Aqueduct Entertainment, the report added. Mr. Smith also had once been a business partner of Darryl Greene, an early member of Aqueduct Entertainment who later dropped out.

The report describes the selection process as a “political free-for-all,” with nearly every Albany lobbyist employed by one of the six companies vying for the franchise; Aqueduct Entertainment hired seven. The rival bidders showered important legislators and the governor with more than $100,000 in contributions, the report said, with Aqueduct Entertainment coordinating $40,000 of its own donations with the Democratic Senate Campaign Committee and instructing a “subcontractor to make a contribution in order for the monies to be pooled with contributions from other A.E.G. members.”

A public relations consultant for Aqueduct Entertainment told the inspector general that someone in the campaign committee’s office “contacted me and said we would be appreciative if you could help raise money for Aqueduct Entertainment Group, your partners, for these five individuals.” The five were Democratic senators, including Mr. Adams.

While the inspector general is forwarding the report to prosecutors, the report appears to acknowledge that proving a criminal case might be hard because the selection process had almost no rules. The leaked information, for example, would have been considered confidential “in any legitimate pending procurement process,” the report said. Likewise, the standard prohibition on legislators accepting donations from companies with business before them did not apply in the casino selection process, the inspector general wrote.

Nevertheless, at least two people involved in the process invoked the Fifth Amendment and would not speak with the inspector general’s office: Mr. Sheinkopf and David W. Johnson, a close aide to Mr. Paterson. The report said that although Aqueduct Entertainment did not lobby the governor, it did reach out to Mr. Johnson, who subsequently pushed for the company within the executive office.

Earlier this year, Mr. Paterson dropped out of the governor’s race days after a report in The New York Times raised questions about whether he and his administration had improperly tried to pressure a woman who had accused Mr. Johnson of domestic violence. In July, a state investigation found that the governor and his advisers made errors of judgment but that their actions were not criminal. Mr. Johnson has been charged with assault.

A lawyer for Mr. Sheinkopf, Henry Mazurek, did not deny that Mr. Sheinkopf received the bidding information. He did dispute any notion that any bidding material was “confidential.”

“There were no restrictions on the Senate or the Assembly as to what they could do with any information they received with respect to the bidding process,” he said. “There were no controls.”

Mr. Mazurek said he did not know whether any other bidder also received inside information.

The inspector general’s report said Mr. Paterson’s counsel, Peter J. Kiernan, never disclosed to the governor that the State Lottery office, which was responsible for evaluating the bids, had considered Aqueduct Entertainment’s unacceptable, although Mr. Kiernan himself was often critical of the consortium’s bid.

Danny Hakim contributed reporting.

A version of this article appears in print on October 22, 2010, on Page A1 of the New York edition with the headline: State Report Faults Senators on Casino Bidding. Order Reprints|Today's Paper|Subscribe